RPT-UPDATE 2 -Taiwan economy grows at solid pace, signals improving global demand

Wed Apr 30, 2014 1:08am EDT

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By Faith Hung and Jeanny Kao

TAIPEI, April 30 (Reuters) - Taiwan's export-dependent economy grew at its quickest pace in over a year in the first quarter, data showed on Wednesday, suggesting rising momentum in developed economies and an improving outlook for the global tech sector.

The preliminary growth rate of 3.04 percent in the three-months to March 31 also indicated that the island's economy may be able to weather a slowdown in China, its biggest market, as exports to the United States and Europe showed a heartening pick up.

Taiwan's economy, home to the world's biggest contract chipmaker and a crucial supply chain for major electronics brands, is often viewed as a bellwether for global growth and tech demand.

"What's eye catching was the strong contribution of net exports, which added 1.57 percentage points to the overall growth rate," said analyst of Raymond Yang with ANZ in Hong Kong.

The first quarter growth was the strongest since the last quarter of 2012, according to the Directorate General of Budget, Accounting and statistics, driven by a low-base of comparison, solid private consumption and a steady pick up in exports.

It was largely in line with a median forecast of 3.0 percent in a Reuters poll and slightly ahead of the 2.95 percent rate booked in the fourth quarter of 2013.

The signs for the rest of the year were positive, and backed the International Monetary Fund's view that an increase in output in richer nations will spur the global recovery.

March exports to the United States, Taiwan's no. 2 market, rose 10.3 percent on-year, with shipments to Europe up 10 percent -- in both cases it was the strongest growth rate in a year.

The increase up in shipments provide a shot in the arm to Taiwan's economy, which is facing some uncertainty as growth in China continues to slow down this year..

On a sequential basis, GDP growth eased substantially to 1.1 percent on-quarter, from over 7 percent in the fourth quarter -- due to weakness in domestic demand -- which points to the need for the export sector to pick up the slack.

APPLE EFFECT

The recent eye-catching results from Apple Inc, which sources many components from Taiwan and contracts out much of its production of iPhones and iPads to firms such as Hon Hai Precision Industry Co Ltd, also bodes well for the island's exports.

"I still view the export picture as good overall. Despite the relative weakness in some sectors like flat panels, if you look at products such as semiconductors and chips, we're still doing quite well," said Rick Lo, senior economist of Fubon Financial Holdings.

Lo said that Apple's iPhone 6, expected to be launched around September, "should continue to drive Taiwan's exports in a positive direction."

Apple's luster had already rubbed off on some of Taiwan's big tech firms.

Hon Hai's first-quarter profit came in above expectations, on continued strong sales of Apple-branded iPhones and iPad products.

Taiwan Semiconductor Manufacturing Co Ltd, the world's largest contract chip maker and another supplier of Apple, reported bright first-quarter numbers and an optimistic outlook for 2014 on increased demand for its chips in high-end smartphones.

DOMESTIC CONSUMPTION

Domestic private consumption grew 2.94% on year, just ahead of the government's pick for a 2.84% rise, mainly supported by increasing confidence on the back of a rising stock market and an increase of tourists from China.

The improving economy has also lured foreign-investor inflows in recent months, sending the Taiwan stock market surging to its highest point in almost three years.

Wednesday's GDP data puts the economy on track to meet the statistics agency's 2014 growth estimate of 2.82 percent. The government's revised first-quarter number will be finalised in the next few weeks.

The government did not amend its outlook for economic growth this year. In March the head of the statistics agency said growth could potentially reach 3 percent in 2014, which would be the best growth rate in three years.

"Despite a pullback in both exports and imports, I was pleasantly surprised by the strength in private consumption. This points to the overall strength in the labor market and a steady if gradual improvement in wages," said Fubon's Lo.

(Additional reporting by Michael Gold; Editing by Shri Navaratnam)

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